THOMASVILLE, GA. — Improved efficiencies coupled with strong performance in the branded sector helped drive a 9% gain in earnings at Flowers Foods, Inc. in the first quarter ended April 24.

Net income in the quarter was $40,687,000, equal to 44c per share on the common stock, up from $37,381,000, or 40c per share, in the same period last year.

Net sales were $795,026,000, down 1.5% from $807,007,000 in the first quarter of fiscal 2009. The decline in sales was attributed to an unfavorable pricing/mix of 2.4 percentage points and decreased volume of 0.7 points. The deconsolidation of a variable interest entity also negatively impacted sales by 0.2 points. A 1.8-point contribution from acquisitions partially offset the declines.

Flowers attributed the decline in volume to food service and store branded retail channels. The company’s branded retail channel, meanwhile, posted increases, particularly in the soft variety bread category. Flowers said the introduction of Nature’s Own Sandwich Rounds was one of the key drivers.

“We are pleased with our overall market share performance and earnings results for the first quarter,” said George E. Deese, chairman, president and chief executive officer. “Our core Nature’s Own branded breads and rolls and our newly introduced products demonstrated solid growth in the quarter, and we gained market share on a dollars and units basis in our retail business. Strong branded performance was offset by softness in our food service business and lower store brand sales, which drove the overall sales decline. We saw sales trends improve throughout the quarter and that gives us encouragement. We achieved improved efficiencies and had lower input costs, which are reflected in both our margin and bottom line improvement.”

Gross margin in the first quarter was 47.8% of sales, versus 46.8% of sales in the same quarter in 2009. The increase in margin was due primarily to a decrease in ingredient costs, particularly flour, and lower packaging costs as a per cent of sales. Flowers said improved manufacturing efficiencies also contributed to the increase.

Materials, supplies, labor and other production costs fell 3% in the quarter to $414,798,000, while selling, distribution and administrative expenses eased 1% to $292,551,000.

In a breakdown of results by segment, first-quarter EBIT (earnings before interest and taxes) was $60,683,000 in the Direct-Store-Delivery segment, up 7% from $56,939,000 in the same period a year ago. Sales were $646,174,000, down 3%.

In the company’s Warehouse Delivery segment, EBIT in the quarter was $13,533,000, down 5% from $14,224,000. Sales were $148,852,000, up 7%.

Looking ahead, Mr. Deese said the company expects good earnings growth for the full year.

“Even though the marketplace remains competitive and promotional activity high, we are encouraged by a slight improvement in our food service business and in overall sales compared to the beginning of the year,” he said.

Flowers left its projected sales growth for the full year unchanged at 2.5% to 4.5%, excluding acquisitions, and earnings-per-share growth at 10% to 15%. MBN